Edited by Harry W. Richardson, Peter Gordon and James E. Moore II
Dwight Jaffee and Thomas Russell INTRODUCTION The costs to the US economy of the terrorist attacks of 11 September 2001 went considerably beyond the horrendous loss of life and property destruction of that day. The event also triggered disruptions in financial markets which threatened adverse effects on the normal operations of a broad set of newly vulnerable industries. Immediately following the attacks, the insurance industry, recognizing the new magnitude of this risk, began to place terrorism exclusions in standard commercial property loss contracts. At the same time, mortgage providers and other lenders, aware that collateral was now exposed to terrorist action, refused to make loans unless the borrower obtained terrorism insurance coverage. In the face of this ‘catch-22’, the pace of mortgage and other lending slowed, leading to a loss of jobs in construction and other industries dependent on loan markets. Reacting to this, and aware of the obligation to maintain full employment, the US Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA), a temporary measure which made Treasury funds available for three years as a backstop to the private insurance market. The purpose of the Act was to buy time to allow the private market to regain its capacity to handle terrorism events. This did not happen, and the Act was extended by a further temporary (two years) measure, the Terrorism Risk Insurance Extension Act (TRIEA), passed in December 2005.1 This act expired in December 2007 and was in turn replaced by the Terrorism Risk Insurance Program...
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